How to Get Out Of Your Overdraft (and Stay Out Forever!)

If you’re stuck in your overdraft every month, you don’t need to be, and there are things you can do to make a change and clear your overdraft.

As soon as you’re paid, it feels great until the bills are paid and – BAM – you’re straight back into using your expensive overdraft all over again.

Getting stuck in an overdraft can feel soul-destroying.

This cycle of overdraft debt is rubbish. Always being in debt starts to become a normal way of life, and it feels like you’ll never get out of it.

I know all too well how crap overdrafts are, after spending years in debt with my bank.

Overdraft debt trap

The only time I wasn’t in my overdraft was a bank holiday payday weekend, and it felt awesome, but it never lasted.

If I usually got paid on a Monday, the bank holiday meant it got pushed forward to the Friday before. I then had the long weekend with all that money in my account, earning peanuts in interest, and tempting me to spend it (!), until the banks opened again on Tuesday and sucked every penny out for bills.

My overdraft was one of those things that just seemed to get worse.

I did what I read up I should do. Struggling one month, I contacted the bank as I was worried about getting charged for using the unauthorised overdraft, so they kindly upped it for me.

But, the money got swallowed, and the next month I was left with more debt.

For me, although I saw my overdraft as a debt, it was one I felt I could do little about.

With a credit card (although wrong), if I was mega, mega skint, I could choose to cancel the direct debit and not pay it one month, so I could pay something else. My life was spent robbing Peter to pay Paul.

There is never this option with an overdraft as the bank has direct access to your money so will take it anyway.

I think because I was resigned to the fact they’d just take the payments, I used to focus on my other debt repayments and would put my overdraft on the back burner – but I wish I didn’t!

While I was paying some 20-30% on my credit cards, my overdraft was actually costing me a whole lot more.

That’s not what they’re there for and should be an emergency buffer to use as a one-off – I felt trapped.

The bank can cancel your overdraft

The terms and conditions of your bank account say that the bank could cancel your overdraft at any time.

This used to make me worry like you wouldn’t believe.

I’d imagine getting paid and, before any bills were taken out, the bank decided to cancel the whole overdraft.

The amount of sleep I used to lose, the tears I cried, lying awake at night, thinking about if it happened to me.

It never happened thankfully, and it’s not something I hear happening often, as the bank no doubt realise the financial difficulty they’ll put people in.

However, if your bank does cancel your overdraft with no warning, and then you get charges for not paying your bills or direct debits, you should complain.

Clear your overdraft

Instead of getting stung with overdraft fees and charges, take the decision now to change things.

Here’s how to go about it.

Create a budget

First things first, you need to work out how you can afford to live and get by.

Look at your incomings and outgoings to work out how much you’ve got spare each month.

Take into account things like birthdays, MOT and car servicing, cost of new glasses as part of a sinking fund.

But, is there anything on your budget you can cut out?

Thing is, it’s not forever. Debt willgo away, and it’ll clear that much faster if you cut your monthly expenses.

There’s nothing to say you can’t start spending on extra luxuries when you’ve cleared your overdraft off. It can just help to make a few temporary sacrifices to speed up the process of getting your overdraft cleared.

While you won’t have an issue opening up a new bank account due to the Current Account Switching Guarantee (even if you’re in an overdraft), depending on how bad your credit rating is, the new bank may not give you the same level of overdraft. But, you won’t know until check.

They may be able to come to an arrangement for you to pay off your existing overdraft.

If you’re not moving the overdraft, you will need to sort out paying it back before you switch.

Being able to manage your day to day spending in a brand new account (perhaps don’t even apply for a new overdraft), may allow you to feel different about your finances.

Treat the overdraft like a proper debt and clear it down monthly, rather than it sitting as a pot of money that gets swallowed each month.

Speak to your old bank. Tell then how much you’ve worked out from your budget that you can afford to pay each month, then go from there.

Transfer a balance?

You need to have a decent credit rating, which is why it’s not the first thing on the list.

Speaking from experience, as someone who lived in an overdraft, trying to get a 0% balance transfer card was out of the question.

However, if you’re in a different place to where I was, look to use an eligibility calculator (the one on the Clearscore app works well) to see what your chances are of being accepted for a balance transfer card.

Using an eligibility calculator will give you a chance to see if you will be accepted, without a search showing on your credit file.

You will need to pay a small percentage fee on the amount you transfer to the credit card, but this could be much less than overdraft charges.

But, before you go ahead, you need to work out whether it’s something you can afford. Divide the number of months you’ve got with no interest by how much you’ve got to clear and pay that each month. This way, you won’t need to pay any extra interest.

They may say that you only need to pay back £30 odd a month, but this is just the minimum amount so pay more to clear it before the end of the interest-free period.

Be sure to pay the whole amount off before the interest kicks in; otherwise, you will then need to start paying their standard interest rate.

And then, if you don’t pay it all off, you’ve now got a different type of debt and are stuck all over again.

Only go down this route if you’ve got the motivation to stick to paying it off, and can afford to do it as the interest stinks!

Stick at it

Don’t get me wrong – it’s hard work!

And, it can feel like an end isn’t in sight.

When you know how much you can lower your overdraft each month, work out how many months it’ll take.

You’ve then got yourself an end date. You’ll have a point in time that you can aim for when you know the overdraft will be over.

I know life gets in the way, from a broken appliance, a hole in school shoes, Christmas and birthdays are there every year, but stick at what you’ve decided to do and smash it.